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TMI Blog2016 (6) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 1,00,000/- made in this respect.- Decided in favour of assessee. Foreign Exchange Losses - Held that:- The orders of the learned CIT(A) for assessment years 2009-10 and 2010-11 holding that foreign exchange losses for assessment years 2009- 10 and 2010-11 respectively were business losses and directing the AO to allow the same calls for no interference from us and we therefore confirm an uphold the same. See Commissioner of Income-Tax Versus Badridas Gauridu (P.) Ltd. [2003 (1) TMI 61 - BOMBAY High Court] Disallowance under section 40(a)(ia) - non payment of TDS before the end of the financial year, by which time it was due to be paid - Held that:- The Hon'ble Calcutta High Court in the case of CIT vs. Virgin Creation (2011 (11) TMI 348 - CALCUTTA HIGH COURT ) has held that the amendment to section 40(a)(ia) of the Act by Finance Act, 2010 w.e.f. 01.04.2010 was retrospective and therefore TDS has to be paid on or before the due date specified for filing the return of income under section 139(1) of the Act; in this case 30.09.2009. In view of the fact that in the case on hand, the assessee has admittedly made the payments of TDS in the next financial year but before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loss suffered by the assessee was not speculation loss but business expenditure. 2. Whether on the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in deleting the additions made by the AO u/s 40(a)(ia) of the Act. 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to add, amend vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 2.3 Assessee s CO No. 291/Mum/2013 for A.Y. 2009-10 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in confirming- a) The Disallowance of ₹ 18,86,195/- under the provisions of section 14A read with rule 8D of the Income Tax rules and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of Income Tax Act 1961 and rules made there under and disregarded the disallowance of ₹ 12,280/- worked out suo moto during the Assessment proceedings. b) The Disallowance of ₹ 1,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,38,089/- thereunder. On appeal, the learned CIT(A) restricted the disallowance thereunder to ₹ 10,00,000/- on an adhoc basis. 3.2.2 The assessee is in appeal before us on this issue challenging the decision of the learned CIT(A) in sustaining the disallowance to the extent of ₹ 10,00,000/- as being arbitrary, illegal, excessive and unreasonable. At the outset, it was brought to our notice that Revenue s appeal for A.Y. 2007-08 on this very issue of disallowance under section 14A r.w. Rule 8D was considered and disposed off by a Coordinate Bench in ITA No. 6556/Mum/2011 vide order dated 28.01.2013. It appears that though this appeal was filed on 10.02.2011, this fact was not brought to the notice of the Coordinate Bench by the assessee and the first hearing in this appeal was fixed by the Registry on 30.07.2013; by which time the Coordinate Bench had disposed off Revenue s appeal (viz. in ITA No. 6556/Mum/2011 vide order dated 28.01.2013). In that order, the Coordinate Bench restored the matter back to the file of the AO to decide the issue of disallowance under section 14A of the Act afresh. In these factual circumstances, since the issue in the cross appeal stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. 3.3.3 We have heard both the learned D.R. for Revenue and the learned A.R. for the assessee. In the course of hearing, the learned A.R. for the assessee submitted that the assessee had earned exempt dividend income of ₹ 41,216/- in A.Y. 2009-10 and ₹ 40,003/- in A.Y. 2010-11 and that while the assessee had claimed that no expenditure had been incurred for earning this income in A.Y. 2009-10, ₹ 40,000/- was shown to have been incurred for earning the exempt income in A.Y. 2010-11 It was contended that in the light of the decisions of the Hon'ble Punjab Haryana High Court in the case of Empire Package P. Ltd. in ITA NO. 415 of 2015 dated 12.01.2016 and of the Hon'ble Delhi High Court in the case of CIT vs. Deepak Mittal (2013) 38 Taxman 83 (Delhi), the disallowance under section 14A r.w. Rule 9D in the case on hand @ 0.5% of investment in tax free securities cannot exceed the exempt income and should be restricted accordingly. 3.3.4 We have perused the cited judgements. In the case of Empire Package P. Ltd. (supra), the question raised by Revenue before the Hon'ble Court was: - Whether in the facts and circumstances of the case the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in relation to the tax exempt income . The disallowance under section 14A read with Rule 8D as worked out by the Assessing officer is not in accordance with law and as such working is not sustainable. 8. In view of the above observations, I think it is appropriate to set aside the order of the learned CIT(A) on this issue and remit the matter to the file of AO with a direction to decide the issue afresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee. Additionally, the tax effect involved is of ₹ 1,26,589/- only. 5. The view adopted by the Tribunal being a plausible view based on factual position and the relevant case law on the point, does not warrant any interference by this Court. Learned counsel for the appellant-revenue has not been able to show any illegality or perversity in the impugned order. Thus, no substantial question of law arises. Consequently, the appeal stands dismissed. 3.3.5 Respectfully following the decision of the Hon'ble Punjab Haryana High Court in Empire Package P. Ltd. (supra) and of the Hon'ble Delhi High Court in the case of Deepak Mittal (supra), we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Apex Court in United Glass Mfg. Co. Ltd. (supra) we hold that the expenditure of ₹ 1,00,000/- incurred by the assessee on club membership fees for employees is admissible business expenditure and therefore direct the AO to delete the disallowance of ₹ 1,00,000/- made in this respect. Consequently the CO s ground (b) for A.Y. 2009-10 is allowed. 5. Revenue s ground No. 1(a) (b) for A.Y. 2009-10 and Ground No.2 for A.Y. 2010-11 - Foreign Exchange Losses 5.1 In these grounds, Revenue assails the impugned orders of the learned CIT(A) for assessment years 2009-10 and 2010-11 as being erroneous in holding that the foreign exchange loss suffered by the assessee on forward contracts in the relevant periods were allowable business expenditure and not speculation loss as held by the AO. According to the learned D.R., the AO in the course of assessment proceedings noticed that the assessee had claimed foreign exchange hedging losses on forward contract of ₹ 16,72,85,011/- for A.Y. 2009-10 and of ₹ 6,53,06,057/- for A.Y. 2010-11 as business loss allowable under section 37(1) of the Act. The learned D.R. submits that the AO after examining the matter, while n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) after examining the provisions of section 43(5) of the Act, held that the proviso (a) thereto was squarely applicable to the facts of the case on hand, as the assessee had entered into the foreign exchange forward contracts in the course of its business of manufacturing and exporting of its products against specific export orders, export sales and realization of such export sale proceeds, with a view to safe guard itself against foreign exchange losses through future price fluctuations. It is in these circumstances, that the learned CIT(A) held that the proviso (a) to section 43(5) was squarely applicable to the case on hand and therefore the losses suffered on account of foreign exchange forward contracts were not speculative in nature. 5.2.2 The learned A.R. for the assessee submitted that the learned CIT(A) also observed that the foreign exchange forward contracts entered into by the assessee could not be said to be derivative within the meaning of proviso (d) to section 43(5) of the Act. The learned A.R. for the assessee contends that in view of the above factual findings and referring to certain judicial pronouncements; wherein it was held that in cases of exporter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds to be received. 5.3.3 We concur with the view of the learned CIT(A) in the impugned order that the facts and circumstances of the case establish that the proviso (a) to section 43(5) of the Act is squarely applicable in the case on hand since the foreign exchange forward contracts entered into by the assessee with banks, in the course of its manufacturing and export business of fruit pulp and allied items, were in order to safeguard itself against possible future foreign exchange losses on account of exports sale proceeds receivable, due to fluctuation in price of different commodities and which contracts were backed by confirmed export orders for dealing of goods manufactured or traded by it. These transactions were not speculative in nature and the resultant foreign exchange losses were consequently not speculative losses but allowable business losses. Such contracts are directly from and incidental to the assessee s business of manufacture and export of fruit pulp and allied products and therefore, in our view, do not represent speculative transactions. Therefore, the concept of delivery and nondelivery thereof is of no consequence and is irrelevant in the context of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the judicial pronouncement referred to (supra), we are of the considered view that the orders of the learned CIT(A) for assessment years 2009-10 and 2010-11 holding that foreign exchange losses of ₹ 16,72,65,011/- and ₹ 6,53,06,057/- for assessment years 2009- 10 and 2010-11 respectively were business losses and directing the AO to allow the same calls for no interference from us and we therefore confirm an uphold the same. Consequently, Revenue s grounds No. 1(a) and (b) for A.Y. 2009-10 and ground No. 2 for A.Y. 2010-11 are dismissed. 6. Revenue s Ground No. 2 for A.Y. 2009-10 - Disallowance under section 40(a)(ia) of the Act 6.1 In this ground Revenue assails the order of the learned CIT(A) as erroneous for deleting the disallowance of ₹ 10,04,650/- made by the AO under section 40(a)(ia) of the Act for non payment of TDS before the end of the financial year, by which time it was due to be paid. The learned D.R. was heard and placed support on the order of the AO in the matter. 6.2 Per contra, the learned A.R. for the assessee supported the findings of the learned CIT(A) on this issue in directing the deletion of the disallowance of ₹ 10,04, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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